Starting a business is a venture that is not usually all plain sailing. There will be a number of obstacles in your way and right at the top of the list is finding the money to fund it in the first place. After the economic crash that happened a few years ago, financing isn’t always easy to obtain and you may have to try several different methods before you settle on one that is right for you. Launching any business is something that comes with a degree of risk, but the rewards are there for those who make a success of it.
Here is a quick overview of the top ways that people get the money together to start their own business.
Use Your Own Savings/Sell Your Assets
If you have saved money over a number of years, you may well be able to channel this into your business. In today’s online marketplace, a lot of businesses can be started without requiring a huge amount of capital so this may be a good method if you don’t need a great deal of money to begin with. This has the natural advantage of meaning that you are relying on yourself rather than needing the support of others. Another option is to sell off any assets that you own as a way of self-financing your business. Of course, this isn’t the option for everyone as some businesses require a much larger amount of startup cash.
Raise Money From Friends and Family
Getting a little help from your friends and family is probably the most common way of financing a business. The main issue with this approach is that you turn those closest to you into creditors, which could jeopardise future relations with them. A common mistake is to go to them before a tangible business plan is in place. You need to make sure you have done all the calculations and give yourself the best starting point possible before actually approaching your friends and family. This shows them that you take the business very seriously and appreciate the money that they are investing in you. One of the most important things to do is reinforce that you understand the risk that they are taking. This can avoid any future awkward conversations down the line!
Get A Loan
Another common approach is to obtain an official loan. In days gone by, bank loans for small businesses were easier to obtain but now there tend to be more hoops that you have to jump through. Another option is to get a personal loan. Even if you don’t have a strong financial history, poor credit loans are available. Once again, this is where you need to have that strong financial plan in place so you minimise your risk of getting into difficulty somewhere down the line. Make sure you are fully aware and comfortable with the terms of the loan before actually taking the plunge.
Use a Credit Card
It is a risky approach if you use it for big sums of money, but many people use their credit card in order to have quick access to some extra cash. These tend to be relatively easy to obtain for most people, but don’t fall into the trap of getting sucked into a huge amount of debt. If you end up falling behind on your payments, your credit score could take a huge hit as a result. Alternatively, if you just pay the minimum each month then you could be digging a hole that it is very difficult to get out of. If used responsibly, a credit card can be a very useful tool for shoring up the cash flow situation of your business.
Nowadays, crowdfunding is becoming an increasingly popular way to fund various projects. These tend to be most common when it comes to relatively low cost, creative businesses. You start by setting a target of how much you would like to raise over a period of time. Next, friends, family and complete strangers all contribute their bit to the overall total. Remember, these type of sites don’t tend to be for long term funding. It is still a relatively new approach, so it is changing all the time, but investors can still end up making a decent return if your business is a success.
Pledge Future Earnings
If you are ultra-confident in your future success, you may be willing to make a bet on your future earnings. Ultimately, you will have to have a very strong business model and be able to show that you have projected to make a great deal of money in the future in order for investors to trust you. The deal goes that you will give a percentage of whatever you make in the future for that initial upfront investment.
Attract an Angel Investor
Finding an angel investor is another traditional way of getting money together for your startup. Wealthy individuals are still willing to back your business if you can prove to them that it is worth their while. A good way to improve their trust in you is to get the support of an experienced management advisor to pitch with you. This shows that you have expert support behind your team. Make sure that your business is a passion project and an area that you know inside and out. There is nothing more likely to give off a negative impression than if you are unable to answer a lot of the questions that are thrown at you. Make sure you have done everything from marketing assessments to sales plans so you can show them that you are well and truly prepared. If you can’t persuade them straight away, it is worth keeping in touch so you can inform them of successes that you have had that might persuade them to give you their backing.
All kinds of community development finance initiatives have been set up around the country as a way of supporting individuals and businesses that can’t obtain the funds they need through traditional methods. Their terms are often quite restrictive so you will have to qualify by being a micro-business or social enterprise, or be based in a disadvantaged area. If you meet any of this criteria then it is worth looking into to see if you could finance your business this way.
The process of factoring involves selling your receivables at a discount so you can get the cash up front. This is a common method for companies that have a poor credit record or those that have to fill long order before they can get paid. The main disadvantage is that it is an expensive way to raise funds. Companies generally pay a fee that is a percentage of the total amount, which can end up being pretty steep. That is why factoring has got a bit of a bad rep in recent years.
These are just a few ways that businesses can get off the ground fiscally. The one thing that they all have in common is that you will need a solid plan of how you will actually the spend the money, and more importantly, how you will pay the money back if you have borrowed it. Obviously, in business there are no guarantees, but you will be in a much stronger position if you build from a solid plan in the first place.